Checking the status of affairs in any company is necessary, since only constant strict control over financial transactions can guarantee the normal operation of the enterprise, not subject to the harmful effects of errors, negligence and fraud of personnel. That is why internal and external audit are extremely important for the life of any company. In this article, we will consider both of the above types of audit and try to understand how they differ from each other.
Internal and external audits in essence represent a check of the state of affairs at a firm in a particular industry. Traditionally, the concept of audit is associated only with checking the financial condition of the company, however, in fact, anything can be checked. For example, an internal audit of a quality management system can be carried out , the results of which will give a clear idea of how the company controls the quality of its products and what efforts it makes to improve it. Such verification will make it possible to identify the weakest points of the quality management system and formulate concrete proposals for its improvement.
Internal and external audits differ in who will conduct the audit. So, internal audit is carried out by employees of the enterprise. The decision to conduct an internal audit is taken by the management of the company in the event that there are suspicions of any violations, or if an internal audit is carried out regularly. To carry out the audit, a special commission of internal auditors is drawn up, which for a certain period will check the state of affairs of the company in a particular area. The indisputable advantage of internal audit is its free of charge, as well as the fact that all information remains inside the company, and no third party will have access to it. However, the internal audit has its drawbacks: the company's employees will not be able to ensure the due independence and impartiality of the audit, since they are somehow connected with the rest of the enterprise team, in addition, each of the auditors will have to check their department as well, and the temptation to correct verification results will be incredibly great. That is why the selection of employees for the commission of internal auditors is an extremely crucial moment, associated with many difficulties, and only if the commission is composed of competent employees from different departments, we can count on a qualified and efficient audit.
An external audit is conducted by an independent expert - a representative of an audit firm, who undertakes to check the financial condition of the organization for a fee and report any violations in a special letter in which the audit report is submitted . This type of audit will undoubtedly be more objective, because the auditor is an independent expert, who does not associate anything with the organization he checks. However, there is a flip side to the coin: the auditor, despite the fact that he is a professional who undertakes to keep all the information received secret, is nevertheless external to the company, which means being 100% sure that he never under what circumstances does not use the information received, nevertheless it is impossible. In order to objectively assess the quality of the audit, an internal audit quality control is carried out, which is similar to the internal audit, however, it has some differences related to the fact that the audit results are checked. After conducting such control, a decision is made on further cooperation with a particular audit firm.
Thus, internal and external audits are similar processes, with the main difference being that the internal audit is carried out by company employees and the external audit is conducted by independent experts. To achieve the optimal balance between the effectiveness of the audit and the resources expended, a successful combination of both external and internal audits is required, each of which has undeniably positive and negative sides.